Long-run Equilibrium for the Greater Paris Office Market and Rental and Demand Adjustments

While there is an abundant literature on office market modeling, only few studies focus on the Greater Paris case. This article aims at contributing to the understanding of the Parisian office market underlying mechanisms. We combine the use of cointegration techniques to a multiple structural break approach to model the market over the period 1991-2012. We employ a two stage error correction framework to identify both long and short-run market determinants in the context of rent and demand relationships. The findings show that once made allowance for level shifts in the long-run relationships, the specified models explain relatively well the Parisian market. The results highlight the role of the vacancy rate as a long-run driver of rental values while both employment and rents explain long-run office demand. Yet, in the short-run, lagged dependent variables appear to be drifting both variables away from their equilibrium.